Shares of electric vehicle (EV) company Faraday Future Intelligent Electric (FFIE 30.86%) jumped as much as 50% in trading on Tuesday as investors became more bullish on the company’s turnaround plan. The volatile stock lost nearly all of its gains mid-day but closed the day up 30.9%.
Signs of life in EVs
Earlier this week, Rivian signed a deal with Volkswagen that would provide electronic architecture to the larger automaker through a joint venture. VW also made a large investment in Rivian.
This indicated there’s at least some appetite for large automakers to partner with smaller rivals that may have technology that would be beneficial. But there’s no such deal for Faraday, so any pop in shares is purely speculative.
We also learned this week that Faraday has a plan to regain compliance with Nasdaq that includes up to a 40-for-1 reverse-stock split and the authorization of more shares. This could lead to further dilution for the company in the market.
Survival is the name of the game
Rivian raised money because it needs to build another plant to get to free-cash-flow-positive. Faraday doesn’t even have that in sight after reporting $800,000 in revenue in 2023.
As of May 23, 2024, Faraday had about $5 million in cash and burned $278 million in 2023, so that cash won’t last long.
Faraday is hoping to survive, and it seems investors are betting some large automaker may turn to the company for technology that would provide a bailout. I think that’s doubtful, and today’s bounce is part of the volatility of small-cap stocks when they’re facing the end of their available funding.
Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Volkswagen Ag. The Motley Fool has a disclosure policy.
